The system for handling complaints against banks, insurers and other financial institutions is to be revamped amid growing concerns that the Financial Ombudsman Service (FOS) will be engulfed by claims relating to car financing this year.
The Chancellor, Rachel Reeves, promised that the system would be overhauled and the FOS would be modernised.
The shake-up will include plans to update the dispute resolution rules for the first time in a decade.
The FOS must continue to “play a vital role for consumers to get redress while giving clearer expectations around its decisions for consumers and financial services firms”, Reeves promised in a speech at Mansion House in the City of London.
She has asked the Financial Conduct Authority (FCA) and the FOS to clarify how they will co-operate, particularly over the issue of “historic market practice and mass redress events”.
Both bodies said yesterday that they would examine ways to “prevent financial issues leading to a spike in complaints and uncertainty for firms and their customers”.
They invited feedback from the industry and other bodies on how to do this. Last month, the FOS said the number of financial complaints it received in the first half of 2024 was up by more than 40 per cent.
It said it wanted a better way to solve mass redress events to “ensure better outcomes for consumers, firms and the market”.
James Dipple-Johnstone, the deputy chief ombudsman at the FOS, said: “We help to resolve difficult disputes for consumers and businesses – providing impartial help in often challenging circumstances.
“We are committed to improving our service and helping to create a redress framework fit for the future.
“We have seen how large volumes of complaints in particular areas can impact the effectiveness of the system. By further strengthening our work with the FCA and industry, we can identify and address these issues more promptly to ensure better outcomes for all.”
Despite criticism of its plans to charge consumers using professional assistance for complaints against financial service companies, the FOS said it planned to push ahead with the charges, which could go up to £250, subject to parliamentary approval.
Charging to bring complaints could make volume complaints unmanageable, the Law Society said, while consumer groups and charities warned of people being deterred from using professional advisers.
Stephen Haddrill, the director-general of the Finance and Leasing Association, many of whose members face compensation uncertainty over hidden motor financing charges faced by shoppers buying vehicles on credit, said: “There is much to be welcomed in the Chancellor’s speech, not least reform of the FOS.
“Certainty, clarity and predictability must be the watchwords of financial services regulation. The activity of claims management companies, which has choked the complaints system with baseless claims, should also be curtailed.”
The Chancellor, the Home Secretary and the Science and Technology Secretary called on the tech and telecoms sectors to go further in reducing fraud on their platforms and websites, and demanded an update by March.